The Impact of Germany's Decision to Phase out Nuclear Energy

On 30 May, in the aftermath of Japan's Fukushima nuclear disaster, German
Chancellor Angela Merkel announced that Germany would close all of its 18 nuclear
power plants between 2015 and 2022, which produce about 28 percent of the country's
electricity.

Eight have now been taken offline, and with the winter coming on Berlin is
scrambling to make up the energy shortfall lest the country suffer blackouts
combined with the need to import massive amounts of electricity.

Despite Germany's Kreditanstalt fur Wiederaufbau (German Development Bank)
being set to underwrite renewable energy and energy efficiency investments
in Germany worth $137.3 billion over the next five years, Merkel's government
has now announced that in addition to going green, it will also build a dozen
coal-fired power plants as part of the country's future energy mix. In order
to assure the energy transition, the government also plans to subsidize new
natural gas power plants as well.

Now the consequences of the 30 June Bundestag law phasing out nuclear power
are impacting. On 19 October Germany's Minister of Economics and Technology
Philipp Roesler somberly told Parliament, "The real work starts now," adding
that the ministry now had the goals "To ensure the security of the energy supply
and to protect the environment, within acceptable financial conditions." Afterwards,
Environment Minister Norbert Roettgen told legislators at the same session, "Renewable
energy and energy efficiency are the two pillars of the new energy policy." The
next day Roesler in the company of Finance Minister Wolfgang Schaeuble in a
joint press conference informed reporters that Germany had sharply lowered
its 2012 growth forecast to 1 percent. In April, the month following Fukushima
but before the German government decided to phase out nuclear power, the Economy
Ministry had predicted a 2012 growth rate of 1.8 percent.

The government's newly pragmatic approach contrasts with the hopes of many
environmentalists, who believe that Germany now has an historic opportunity
to embrace renewable power rather than pursuing the retrograde step of commissioning
new coal burning power plants.

But government ministers are increasingly concerned primarily with ensuring
the security of the nation's energy supply, even though the 30 June legislation
mandated that Germany's share of energy from renewable sources must increase
from 17 percent to 35 percent in 2020 and reach 80 percent by 2050. A modest
start has already been made, as since the eight reactors were closed Germany
increased its share of electricity produced from renewable energy sources from
17 percent to 20.8 percent.

But the renewable power sources will be costly. On 19 October the German Association
of Industrial Energy and Power Users complained that electricity price had
increased even though its quality has decreased and noted that next year its
members will see their electrical power invoices increase by 9 percent.

As for the economics of the shift, electricity from conventional coal fired
plants costs roughly $83 per megawatt-hour, the price increases roughly 50
percent to $124 per megawatt-hour for wind energy, $207 per megawatt-hour for
offshore wind power, and $268 per megawatt-hour for solar, the last more than
three times the cost of coal-fired electricity.

Despite the fact that renewable energy has such high differential costs, most
Germans accept it. According to a recent TNS Infratest survey, 79 percent of
Germans polled felt that the "new energy" fees were "reasonable," with only
15 percent considering them "too high." Germany Trade & Invest economic
development agency photovoltaic-industry expert Tobias Homann said, "With the
decision to abandon nuclear power earlier this year, it was clear that the
road ahead would be challenging. But Germany is in a very promising position
to be the first industrialized country to rely entirely on renewable energy."

Despite the cost associated with renewable energy Germany is one of the world's
largest producers of wind power, with 27 gigawatts of generating power installed,
roughly 16 percent of the world's current wind power generating capacity in
the world, making it Europe's biggest consumer of electricity from wind power.

In the new austere Germany, the shift to renewable energy sources comes at
a bad time for the exports-driven German economy, as increased energy costs
can only add to the expensiveness of exports. Needless to say, despite Germany's
commitment to preserving the euro, further uncertainties are introduced into
German economic long-range planning.

Economic teething problems aside, Germany's abandonment of nuclear power and
embrace of renewable energy will be closely watched around the world not only
by nations but the globe's nuclear and renewable power industries. While startup
costs and transition problems have yet to be resolved, Germany is betting on
its future, and future generations using solar and wind power will not have
to bury energy wastes with a half-life of tens of thousands of years.

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